6 ways Federal Reserve policy hurts retirees

Fed policy effect No. 1: Paltry returns on savings

In June 2006, the federal funds rate stood at 5.25 percent. At the Federal Reserve's meeting in September 2007, it began lowering the federal funds rate and continued to do so until it fell to a range of between zero percent and 0.25 percent in December 2008. It remains there today.

Rates on certificates of deposit, money market accounts and savings have plunged in tandem.

The result has been devastating for retirees counting on safe, fixed returns, says Michael Rubin, founder of Total Candor, a financial planning education firm based in Portsmouth, New Hampshire.

"They're earning a lot less on their savings than any other time in recent history," says Rubin, author of "Beyond Paycheck to Paycheck."

Despite such low returns, CDs and other savings vehicles still have a place in a retiree's portfolio. Even getting a sad-sack 1 percent return is better than exposing all your savings to higher levels of risk, says Alan Moore, founder of Serenity Financial Consulting in Milwaukee.

"I look at cash as market insurance," he says. "When the stock market takes a dive, (retirees) don't want to be in the position of having to sell stocks to fund their lifestyle."

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